How Much Cash on Hand Is Too Much? And What Should I Do With It?
If you're in the enviable position of having an excess of cash, you have the opportunity to invest it in your business.
By Joe Worth •
Opinions expressed by Entrepreneur contributors are their own.
Are congratulations in order? Or perhaps you're just thinking positively--I like it! If you're in the enviable position of having an excess of cash on hand, you have the power to take advantage of opportunities to invest in your business. But before we get to that fun topic, let me answer your first question.
Conventional wisdom holds that a business should have liquid assets (cash in bank accounts and very liquid investments) equal to three to six months of operating expenses. That's a nice rule of thumb, but I like to separate cash into a monthly operating account and a contingency fund. Put simply, the operating account should carry a sufficient balance to cover the lowest cash-inflow month of the year for your business. (Seasonal businesses should have enough cushion to last through both their busy and slow seasons.) It's your contingency fund that should equal three to six months of operating cash.
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